This year’s algo survey – celebrating its 10th year - reveals an industry in flux,
with some fairly rapid transformation in the way long-only funds
use algos, what their priorities are
and which brokers they work with.

This probably doesn’t come as
much of a surprise as a mix of commercial and regulatory pressures
are mounting for both the buy-and sell-side and this is having a
knock-on impact for the securities
trader’s most important tool, the
trading algorithm.

The results of this year’s survey
were collected at a time when
firms had less than a year left to
implement MiFID II, which is expected to have a significant impact
on the commercial fortunes of the
investment banks and the extent
to which the buy-side will be able
to utilise trading in the dark and it
seems that many of these issues are
already starting to filter through
to the way buy-side traders think
about their algo strategy and broker relationships.

Beginning with the averageratings the buy-side have giventheir algorithm providers this year,Fig 1 reveals some interesting newdevelopments in 2017. We cansee that both market impact andanonymity have risen up the list forlong-only asset managers this year.Market impact received the secondhighest average score at 5.89 whileanonymity followed close behindwith the third highest averagescore of 5.85. There are a couple ofpotential reasons for this. Firstly,many brokers have in recent yearsbeen censured by regulators forfailing to properly protect theirclients’ order information and forindulging HFT firms over theirbuy-side clients. The effect couldbe that they are taking more careto ensure they properly protectclient order information as muchas possible, due to pressure fromboth clients and regulators. If that’sthe case, it seems they have beensomewhat successful in allayingthese fears. The second reason issimply that the sell-side might justbe further refining their processesto provide clients with their keydemands. Either way, it’s a positivedevelopment for both sides of theStreet if client orders are seeminglyless prone to information leakage.

However, the area which received
the highest score was execution
consulting. A relatively new term
in the investment bank lexicon,
execution consulting is essentially
the process of helping buy-side

clients to better understand their
execution process and outcomes,
analyse all the transaction cost
analysis (TCA) data their receive,
and use that knowledge to achieve
the best possible execution. Again,
regulatory and client pressures are
thought to be largely responsible
here. Upcoming MiFID II rules
will force the buy-side to do more
to achieve best execution and many

Quality not quantityThis year, The TRADE’s Algorithmic Trading Survey gives aninsight into developing industry trends in the final year beforeMiFID II. The result reveal a flight to execution quality anda rationalisation of broker and buy-side relationships.“Both market impact and anonymity have risenup the list for long-only asset managers this year.”